What you need to know when trading penny stocks?

Did you ever know that today’s massive corporations traded as penny stocks back in times? Nothing much has changed since then, despite billions in market capitalization, and there are plenty of stocks trading under $5 per share as of now. The question is not what stocks you need to trade to become successful over time rather what rules you need follow to stay in the profit loop.

When it comes to penny stocks trading, most of the people still think of unregulated OTC market where traders keep speculating chaotically on top-performing microcaps with large bid-ask spreads and tiny liquidity. As you might have guessed, trading like that – is a true way towards bankruptcy unless you come up with your set of rules for penny stock trading. Having a well-designed trading plan along with working strategies will help you prevent from falling into a financial pitfall – hence follow the rules to contribute to buying and selling decision-making process.

 

Rule #1 – Time Your Trades

No matter if you are up on the position or sitting out of the market, having good proper timing when to bail out before losses are too big is far more important than placing your first trade.  You may be taking a profit from winning penny stocks or selling losing shares, which is actually very hard thing to do in the market.

 

Rule #2 – Never Invest More Than You Are Willing to Lose

Never put all your finances at risk given that you can’t afford to lose these funds. It’s not a bank deposit though and having your money wiped off on a trade you were NOT willing to afford, makes you unable to invest in the next hot pick going forward. These are not risk free investments!

 

Rule #3 – Focus on Risk, Not Reward

It’s very common in the traditional exchanges to place hard SLs to unload a losing position and decide when to buy or sell next time. With penny stocks, this may be risky as high volatility and bid-ask spread can ruin you financially! Focus on at least 4:1 ratio, which helps you cut losses, as the 1:1 potential isn’t worth a try.

 

Rule #4 – You Can’t Get Rick on a Single Stock

When the penny stock market comes getting a dump in the short-term, most investors won’t lose patience with pace of change as their portfolios are well diversified. It’s very common that penny stock companies have their success stories as to why they can outperform the broader market. Sometimes they are correct especially when it comes to top-performing penny stocks blast-offs. But you should NOT fall in love with just one penny stock as this may lead to hasty decisions that will ruin your set of rules going forward. Stick to the financial/fundamental side of a penny share only!

Should you want to know more info as regards market performance (both the past and the outlook),please read a letter from the penny stock trader on what penny stocks to look for in 2019.

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